(originally posted in PipeCandy Newsletter #104)
Away wants to be the ‘travel’ company. Casper wants to be the ‘Sleep economy’ company. People want a good sleep. Mattresses get the job done. So do ambient lights, sounds, mindfulness apps and apparently, dog beds so that the furry ones don’t wag their tails on your face while you are asleep.
Aspirational vision statements and north stars are good if you’re a DTC brand. They help DTC brands avoid the trap of stagnation and set them apart from their competition. But there is also a small problem – you don’t announce your way into creating a category brand. Brand extensions are a product of the success of the first brand. Unfortunately for Casper, buying mattresses for cheap and selling them for a loss isn’t how brands are created. Taking that (loss-making) template to launch brand extensions isn’t how you create or own a category. Somebody suggested that Away launches an airline. I hope they don’t take it seriously.
Don’t put all your eggs in one basket:
Better living, better eating, better sleeping, better (dog) parenting are mega-trends.
There is more than one playbook to brand extension and therefore gaining the customer’s attention. Building a ‘better-living economy’ or ‘better-eating economy’ as a single company is a very expensive, time-consuming and often perilous proposition that only Softbank-funded IPO-aspiring companies could dream of. That dream has never become a pleasant reality though.
The novel categories of today become the norm tomorrow. When people buy clean cosmetics or organic, cold-pressed coconut oil today they reflect their intent to live and eat healthily. It is as much virtue-signalling (or vice-signalling) as it is about doing what is good for oneself. As DTC brands capitalize on these mega-trends, the ‘once’ coveted superfoods simply become food. Commodification of categories is the norm. Brand extension in the age of transient trends and low-entry barriers takes more than performance marketing. It takes profits to fund R&D, surprisingly!
Get one right before you can think about two:
Amazon is a more of a dependable brand than it is a loved brand. The ruthless efficiency, price promise, convenience, and predictability are the brand. We don’t ‘vice-signal’ a purchase on Amazon but we cannot live without it either.
As the newness of the categories that a DTC brand can create or ride on wears out, what enables brand extension is boring things like how widely they are distributed, how quickly they deliver and how empowered their customer support is. Doing all of those right, along with a winning anchor product merely allows them the ticket to relevance. Category dominance comes from rinsing and repeating the same boring playbook for brand extensions. Only that, it becomes easier to launch and the results are relatively more predictable with every brand extension.
Another reason we are not very bullish on DTC brands doing brand expansion is that it goes against the very reason why such brands originally became popular. Big CPG and big fashion did not have authenticity and consumer trust. DTC brands exploited that dynamic. Authenticity comes from building products and communicating the value to a community that deeply cares about the purpose.
Try stretching that authenticity to 50 products. It’s essentially big CPG all over again! There is nothing wrong with it, except that the big CPG companies took several decades to create and own categories. They did it by nailing ubiquitous distribution, sustainable COGS, clever marketing and packaging. Look at their cash reserves when in doubt. Its the innovator’s dilemma that is killing them. In other words, their failure is the product of their success. DTC companies need their first success yet.
For every ambitious DTC brand with category-owning aspirations, there are companies like Verishop and Thrive Market that are curating authentic product experiences across chosen categories. They are more likely to win because their value (curation and efficiency) accrues more as they add new products and categories. They can expand a category to multiple brands without diluting their equity. Multiple such marketplaces and curated specialty online retailers will emerge to aggregate DTC brands. The Amazon of DTC will be unbundled mini-Amazons like Verishop and they will be owning specific categories. DTC mega-brands that aim to ride mega-trends have no escape from being boring, ruthless efficiency machines that ride many mini-waves profitably to invest in the future.
In short, if you’re a DTC brand, when it comes to brand extension – BE a brand before you can extend your brand.